Poverty Trends and Policy Options for Kentucky

1. Poverty Trends and Policy Options for Kentucky Dr. James P. Ziliak Dr. Richard Fording Center for Poverty Research University of Kentucky A Presentation to the Poverty Task Force September 21, 2009 Core funding for UKCPR is provided by the Office of the Assistant Secretary for Planning and Evaluation in the U.S. Department of Health and Human Services

2. About UKCPR • Established in 2002 as one of 4 Federally funded poverty research centers in the U.S., the others being located at the Universities of Michigan, Washington, and Wisconsin • Research is both national in scope, and a thematic emphasis on poverty in the South • More detail available at http://www.ukcpr.org/

3. Background on Poverty The Poverty Ratemeasures the fraction of the population with incomes below the poverty line.

4. 2008 Poverty ThresholdsFamilies with Children

5. 2008 Poverty Estimates • National Poverty (2008) • Approximately 40 million people • Poverty rate = 13.2% • Kentucky Poverty (2006-2008) • Approximately 700,000 • Poverty rate = 16.5%

6. Poverty in Kentucky is much higher among • Children (23%) • People with less than high school educ. (30%) • Female-headed families (29%*) • African Americans (30%) • Hispanics (27%) • Persons in rural areas *National Estimate

7. Poverty Rate in Kentucky2007 (All Ages) Source: American Community Survey

8. Poverty Rate in Kentucky2007 (Children) Source: American Community Survey

9. Kentucky has the 5th Highest Poverty Rate among States and DC in 2006-2008

12. The Economic Research Service of the USDA defines a county as persistently poor if the county’s poverty rate exceeds 20% at least since 1970

14. Appalachian Kentucky Leads the rest of Appalachia in terms of Poverty

15. Lags in High School Completion

16. And in terms of College Completion

17. State Anti-Poverty Initiatives Varying Structure Commissions, caucuses, task forces Temporary vs. permanent Bipartisan Varying Goals Poverty reduction targets

18. Task Force on Poverty in Kentucky Combating persistent poverty in Kentucky will require sustained, creative solutions focused on long-term outcomes, not least of which is robust economic growth

19. A Rising Tide Lifts All Boats

20. Long-Term Policy Options • Increase investment in capital--human, health, financial, and physical--via • Expanded Education Opportunities • Tax Modernization with Work and Saving Incentives • Health and Welfare Reform • Infrastructure • These investments are good for all Kentuckians, not just our poor!

21. Expanded Education Opportunities • Pre-K Programs have been shown to have long-term payoffs in terms of • higher graduation rates • higher employment and earnings • reduced crime • Targeting to the disadvantaged, e.g. families eligible for free and reduced price lunch, is likely to yield a higher payoff than universal programs. • Nurse home visits

22. Expanded Education Opportunities • Well known experimental evaluations of Perry Preschool and Chicago Child/Parent Programs show that the preschools have benefit-cost ratios in excess of 3. • Louisiana went statewide in 2001 with its LA 4 preschool program, which is funded with TANF dollars and made freely available to all children eligible for reduced price lunch, has led to notable gains in early achievement

23. Expanded Education Opportunities • Re-examine goals of KERA/NCLB to examine whether they adequately address the drop-out crisis • Research suggests that children age 11 and older fared worse when mothers transitioned to work after welfare • Survey of drop-outs by the Gates Foundation listed several reasons: lack of connection; boredom; unmotivated; academic challenges; family distress. Seeds planted early. • Conditional Cash Transfers are an innovative policy idea from developing countries, and have been adopted in New York City

24. Expanded Education Opportunities • Conditional Cash Transfers are an innovative policy idea from developing countries, and have been adopted on an experimental basis in New York City • NYC also created internship opportunities for teens • JOB Corps • Expanded after-school and summer programs

25. Expanded Education Opportunities • Fundamental shift in U.S. economy toward a skilled work force • High school completion is no longer enough • Need to expand investment in our community colleges and universities, including need-based financial assistance. And then incentivize our graduates to stay and invest in Kentucky.

26. Expanded Education Opportunities • Research suggests that training that focuses on “Human Capital Development” has a higher long-term payoff than “Work First” strategies • Recent work by colleagues at CBER suggests that Kentucky’s firm-relocation subsidy program has some beneficial effects if they incorporate worker training, e.g. through the Bluegrass State Skills Corporation

27. Tax Modernization • Tax system needs to be made consistent with 21st Century economy to provide a more stable funding stream, and encourage work and saving • Low-income workers and families can benefit from fundamental tax reform in Kentucky • State Earned Income Tax Credit • Child Care Subsidies/Tax Credits • Individual Development Accounts • Automatic Enrollment

28. The Federal EITC • Established as a refundable tax credit in 1975 • Only available to low-income workers who file a return • Lifts 4 million families out of poverty each year • Expanded generosity in the 1990s played a big role in raising work among single mothers and lowering family poverty.

29. A State EITC • UKCPR policy brief • “A State Earned Income Tax Credit: Issues and Options for Kentucky” • http://www.ukcpr.org/PolicyBriefs.aspx • 23 states plus DC supplement the federal EITC with a state EITC

30. A State EITC • The federal EITC injected $630 million into Kentucky’s economy in 2005 • 62% of poor families in Kentucky contain at least one worker, and we estimate that a state EITC could assist over 360,000 working poor individuals in Kentucky.

31. A State EITC • Based on research evidence we recommend that a state EITC • Be Refundable • Offer at least a 10% credit rate tied to Federal EITC • Target all low-income workers

32. Child Care • UKCPR policy brief • “The Economic Impact of Child Care Subsidies for Kentucky” • http://www.ukcpr.org/PolicyBriefs.aspx • In 2008 it was estimated that annual infant child care costs were $6,240 for full-time center care and $4,956 for school-age children in non-school hours. This represents 20-25% of annual income for a single mother

33. Child Care • Numerous studies have shown that child care subsidies spur employment, especially among single mothers. • We project that a 25% subsidy could lift single mother employment in Kentucky to a level on par with single moms in the rest of the U.S. • Could be in the form of a wage subsidy or child and dependent care tax credit.

34. Saving and Investing • Automatic Enrollment in Retirement Accounts • Individual Development Accounts with State match • Microcredit/Peer-to-Peer Lending • Basic Infrastructure • Transportation • Broadband/Cell • Environment

35. Health and Welfare • Substantial barriers to health care for many Kentuckians • If successful, will federal health care reform be enough?

37. Health and Welfare • WPA-Type Jobs Program • Expand eligibility for UI/KTAP/KCHIP • Further outreach efforts for food stamps, EITC, WIC • Attending to those with multiple barriers

38. Evaluation • Many programs and ideas have limited experience and/or evaluation • We strongly recommend that the task force include an evaluation component in any new policy initiatives so that we can assess program success and improve policy going forward

39. 2020 Goal Cut Poverty in Half by 2020!